The ugly paradox of Brian Linehan’s Budget is that he has done the right thing for the country but delivered harsh medicine to a great many of her citizens especially the most vulnerable on disability and carers allowances. These cuts are shocking. He has told the ultra left that there can be no further increase in tax on work and he has nailed his colours to the mast on our international low corporation tax brand, setting the country on a path from which we can recover as tepid economic growth returns next year. There was never any real choice but to attack the structural deficit caused by our loss of competitiveness and the property burst by cutting spending. Increasing income tax would have been suicidal but some of the cuts ranging 3.5% to 4.2%  in social welfare should have been less if the crisis was tackled on time. 

The other real losers are those experiencing cuts in pay in the public sector which range from 5% for low paid to 15% to those at the top and where the Taoiseach leads the cuts with 20%. Allied to the huge switch towards progressive tax takes for those on higher pay in the last budget, the Minister has made good on his promise. Nevertheless reading the list of cuts in pay is stomach churning even though I campaigned for this route to be taken to avoid more drastic cuts in social welfare or taxing the country into economic oblivion. 

What is surprising is the extent to which low paid public sector workers are expected to contribute. Linehan should have cut heavier at the middle and higher pay to protect workers earning under €30,000. This is a potentially fatal mistake because it includes those struggling with jumbo mortgages on homes bought at the top of the cycle. Although home repossession orders are to be extended to 12 months the Government simply must do more for these families. You can’t squeeze blood out of a stone and pushing young homeowners to breaking point will foment conflict. 

Other Negatives;

• Did not precisely confirm what he will do next year and the year after.
• Made no commitment to reducing income tax as soon as practical to increase revenues
• Did not accept that FF led Governments are responsible for two thirds of this mess.
• Carbon tax will hit the most vulnerable hardest – those reliant on coal rather than kerosene. 

Positives;

• Income tax, PRSI ceilings and Social Welfare Payments to ages over 66 to remain untouched.
• Stimulus packages introduced including car scrappage, energy efficiency and R&D.
• A 50% increase in minimum tax take for tax avoiders and cash contributions from tax exiles
• Changes to Private Pensions now at last linked to reform of public sector pensions. That pensions relating to grade increases rather than inflation reduces the €108 billion pension liability mountain by 20% sums up the pension ghetto.
• A new pension contract to be introduced in the public sector has been long overdue.
• The introduction of a National Prosperity Bond – this must be inflation linked otherwise it will be highway robbery as an inflation tsunami hits after 2011.
• An independent credit refusal appeal agency for SME’s frozen out by banks.
• Investment in mental health, further training and flooding relief.
• Reversal of VAT increase madness.
• Proposals to widen the tax base to follow.
• Income tax to be simplified next year replacing the daft levy and PRSI labyrinth.

The key test is to come; 

If high and low earners, public and private workers, social welfare recipients and those overseas who invest in our Government debt buy into Linehan’s grand strategy to pull us out of the bog, this ugly budget will have been a success. But if 2010 brings a repeat of the vested interest brawl that dominated 2009 because of the leadership vacuum in the early stages of this crisis, we’re sunk.